Every once in a while, the rules of a really strong strategy can get tested, tempting you to deviate from your rules. If the strategy is strong enough, sometimes you just have to stick to the rules and trust that the odds of success are in your favor. Today was was the 2nd time this week that the rules of a high probability strategy were challenged, but the strategy held. Today's trade involves the 7am-9am EST Germany 30 (DAX) strategy using Nadex binary options.
A veteran trader once observed that the 7am EST hourly candlestick of the Germany 30 (DAX) Index is a pivot point that determines the direction of that market for the next hour or so.
The rules for this are extremely simple:
- Select the 7am-9am EST Nadex time period
- If the 7am EST hourly candlestick is BULLISH, then BUY at the first Nadex strike price available BELOW the opening price of hourly candlestick.
- If the 7am EST hourly candlestick is BEARISH, then SELL at the first Nadex strike price available ABOVE the opening price of hourly candlestick.
While this sounds really easy, sometimes it can be a little bit difficult to execute. Sometimes the formation of the 7am hourly candlestick isn't obvious until 7:45 or later. Patience is a key to this strategy.
- 6:45am EST: Time to pull up the charts and check the economic calendar. No economic news of any importance. The candlesticks were riding above the T-Line (8 EMA) and the 50 MA on the 15 minute charts. Looked like it might be a bullish 2 hour session ahead for the Germany 30 (DAX).
- 7:00am: The Germany 30 (DAX) Index opened at 10991.933 and took off like a rocket. The first 5-minute candlestick closed at 11082.90, over 90 ticks above the 7am opening price! From that point forward, the market started grinding its way back down back to almost the opening price.
- 8:00 am: The 7am hourly candlestick closed barely bullish at 10994.700. From months of trading, testing and back-testing this strategy, there is a strong probability that the 8am hourly candlestick will close above the 7am opening price. The following pending/working orders were placed:
BUY Germany 30 (Mar) >10986 (9AM) - 1 Contract Risk $50, Reward $50
BUY Germany 30 (Mar) >10966 (9AM) - 3 Contracts Risk $80, Reward $20
Both orders filled almost immediately.
- 8:10 am: The Germany 30 (DAX) made a sharp downward move, and breached the 10986 level. By 8:25 it had also briefly breached the 10966 level. which was palsed for insurance against the 10986. order. If the 10986 order failed. it was highly likely that the 10966 order, would recoup the losses. Next the market moved sharply up, before reversing again, threatening the 10986 order.
- 8:50 am: Finally, a big spike north, making both orders good. The 7am-9am Germany 30 (DAX) strategy expired safely in the money at 10999.967, above the BUY orders at 10986 and 10966.
Today's trade was an exercise in trusting the rules of a strategy and its probability of success. The DAX actually expired above the 7am opening price, even though it was a test of nerves down the stretch. It would have been very easy to exit early and cut losses at the 10986 trade, but the decision was made to trust the rules of the strategy and hold firm until expiration. For the 2nd time this week, the rules of a time-tested strategy were challenged, and the strategy held.
For more about the 7am-9am EST Germany 30 (DAX) Strategy, click below
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The Trading Pub Team